09/05/2014: Trading sentiment once more cautious as divisive referendum in Ukraine approaches

Market Overview

Wall Street posted a subdued close last night with concerns that Putin’s apparent pullback on rhetoric will not be enough to stop a referendum in eastern Ukraine from taking place at the weekend, the ramifications of which could be significant. Asian markets have also been cautious as the announcement of lower than expected Chinese inflation was digested with mixed reaction. On the one hand, with inflation dropping to 1.8% (2.0% had been forecast) this gives the People’s Bank of China more room for easier monetary policy, but on the other hand inflation of 1.8% is incredibly low, and probably too low, for a country growing at around 7.5%. European markets are opening weaker today.

Forex trading shows a very slight edge towards the dollar this morning, as traders still remain subdued on the euro ever since Mario Draghi mentioned that he was comfortable to act (through potential monetary easing measures) at next month’s meeting of the ECB.

There is little for traders to go on by way of economic announcements today aside from UK manufacturing production at 09:30BST, whilst Canada also releases unemployment data (expected to be 6.9%) at 13:30BST. Traders will be subsequently once more be watching out for headlines over Ukraine and whether a renewed flight to safety is required.

Chart of the Day – DAX Xetra

The last three weeks have seen the DAX form a tight trading band 9367/9645. The early weakness this morning has perpetuated this trading band which has now had three attempts at 9645 , all have which have turned backwards. The longer term outlook though remains positive for the DAX with the 38.2% Fibonacci retracement support of the 8913/9721 rally at 9412 providing the basis of the range support. Also momentum indicators retain a slightly bullish bias. Intraday we see the range in more detail, however with a series of higher lows over the past few days, the latest at 9488 and 9453, whilst trading above the hourly moving averages, the outlook is positive still for an eventual upside breakout.

DAX   09052014

EUR/USD

Well it took him a bit of time in the press conference, but he got there in the end. Mario Draghi said that he was comfortable with acting next month. Alluding to some sort of monetary easing, the Euro then embarked upon a sharp reversal. The daily chart now shows a huge bearish key on day reversal which left a key high at $1.3992 which could now be a significant change for the chart. The daily chart also shows the next key test fast approaching is the reaction low from the initial dollar strength soon after the announcement of Non-farm Payrolls last Friday and then the support of a key uptrend that has been in place since July last year. However until these levels are broken then the only bearish element to this chart is this key one day reversal. Momentum indicators (for now) remain in positive configuration with RSI around 50, MACD ines above neutral, they just look to be in corrective configuration. The intraday hourly chart clearly looks more negative but even then until the $1.3810 low is broken the chart will probably be just corrective. This makes the next few days key for the Euro as if support forms then it may just be seen as another chance to buy. Initial resistance comes at $1.3871.

EURUSD   09052014

GBP/USD

As I talked about yesterday the near term outlook for Cable looks corrective for a retreat back into the $1.6890/$1.6918 support band and this is now playing out. There is little reason currently to suggest that this will be anything more than a correction which is helping to unwind the overbought daily RSI (now back below 65). With all moving averages rising in bullish sequence and the orderly manner of the correction, it looks like the formation of support should be seen as an opportunity to buy. The intraday chart shows the support of the three week uptrend comes in at $1.6880 so there is still further room for the drift lower in the near term, but with the 200 hour moving average which has been supportive of the big corrections over the past 10 days, I am beginning to look for support to build. The bullish corrective outlook would be questioned on a breach of the $1.6850 low with below $1.6820 confirming a changed outlook.

GBPUSD   09052014

USD/JPY

The downside pressure continues to mount on the slight uptrend support, currently at 101.58. There has now been two consecutive days of trading entirely below the 144 day moving average so it appears as though as a basis of support that is now finished. Focus is more on whether the 101.40 low from Wednesday which once more came under scrutiny will remain intact. Momentum indicators are now in corrective configuration and suggest continued pressure. On the intraday chart the resistance band 101.80/102.00 is ever growing, while the falling 89 hour moving average (currently 101.77) has become the basis of resistance over the past two days. With intraday momentum indicators also in bearish configuration, the suggestion is that any rallies should be used as a chance to sell. It would need a rally above 102.18 to change the near term outlook.

USDJPY   09052014

Gold

Yesterday was a day of consolidation for gold after the sharp decline of Wednesday. The doji candlestick on the daily chart denotes uncertainty and that pretty much sums up the situation in Ukraine. With the prospect of illegitimate referenda still likely to go ahead at the weekend in regions in eastern Ukraine, despite Putin pulling back on his rhetoric, the situation is far from clear. Subsequently the gold price may become supported once more by the “insurance” trade. Technically on the daily chart we still must focus on the flat 144 day moving average as the basis of support at $1282.31. However contrary to that the momentum indicators retain a slight bearish bias, so contrasting daily signals. Intraday the price is trading between $1285/$1295 so perhaps a near term strategy could be to look for breaks of these levels and trade in the direction of the break. Gold remains very difficult to trade.

Gold   09052014

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